Is The RESP Even Relevant Anymore?
Typically I begin by asking parents what they believe is an RESP (Registered Education Savings Plan). Every parent automatically and without hesitation replies that it’s an education savings plan for their children’s future education, where the Government gives them 20% of whatever they deposit to their children’s education savings plan.
Following that they are usually quite surprised when I say that an RESP is not a savings plan but a Government program to help parents save for their children’s education. And that in return for the CESG matching grants their children will be allowed to use the money they saved as long as their child attends a university and studies a program that has been approved under the income tax act of Canada when they are 18.
When I question further as to how much Government CESG grant in real dollars, the majority of parents claimed they believe it is unlimited and they will receive 20% no matter how much they deposit to their child’s RESP.
When I inform them that the annual CESG limit is $500 if they deposit $2,500 into their child’s RESP, and that the maximum CESG grant is $7,200 by the time their child reaches age 17 they are quite surprised again. When prompted further as to why they would open an RESP for their child, the overwhelming majority say, “because it’s free money”, and that everyone advised them from their local bank, group RESP company representative, financial advisor to the media all had the same reply. “It’s free money!”
However when asked if they believe $7,200 from the Government in matching CESG grants 18 years from now would help with their child’s education expenses, the overwhelming majority grinned, made a small laugh and said “NO”.
New parents today are very well aware of the costs of education. This is the generation who’s education costs according to all financial data is well over $60,000 for a four year undergraduate arts program and who graduated with enormous student debt.
These are the new parents who know that the costs will be absolutely out of reach for many when their child attends university and who are yearning for information on flexibility on what else they can do to help their children build a solid financial future.
According to a BMO study, the costs of education for children born in 2012 will rise to $140,000 for a four year undergraduate degree.
Did you know less than half of children in Canada eligible for an RESP have one. According to the Annual Canada Education Saving Plan 2013 report, the participation rate, which is the total number of children who have an RESP out of the total number eligible is 47.1%.
Which begs the question. If the cost of university for a child born today will be $140,000 when they are 18, will $7,200 in Government grants if their parents deposit $36,000 into an RESP even be relevant?
53% of parents don’t think so.
Learn more about Child Plan.
Article Written By Michael Lampel, President & Founder of Insurance for Children
Quick disclaimer: I didn’t hire a survey company to do ‘robo’ calls to parents during dinner or when they’re putting their children to sleep or have strangers ask parents meaningless questions in less than 20 seconds before they hung up the phone in disgust or frustration.
My research is based purely on conversations with hundreds of parents over the past few years on their plans for their children’s financial future and education costs and how they were planning to prepare.